`Micro-enterprise' takes varying routes to success

Financing makes big difference in Md. and in less-developed nations

Like thousands of Bangladeshis served by the Nobel Prize-winning Grameen Bank, Baltimorean Cathy Kratovil is reaping the gains of "micro-enterprise."

Backed by Women Entrepreneurs of Baltimore, a local micro-enterprise promoter, the 43-year-old mother and grandmother bought a Macintosh computer, started a graphic-design business in her Overlea home and quit a part-time job in May to work for herself.

Getting customers is "a hard nut to crack," she says, but she has signed several, and "it's starting to pick up really well for me."

Micro-business pays the same dividends in Maryland or Mymensingh: the chance for career growth and self-sufficiency. But the routes to successful micro-enterprise in developed nations are different from those in the developing world, as demonstrated by Cathy Kratovil.

For would-be small entrepreneurs in Bangladesh, the scarcest resource is financing. They have entrepreneurial drive and a culture of repaying debt, but a shortage of credit. In the United States, the scarcest resource is education and coaching. Our liberal system makes money more easily available, but we need to learn how to use it better.

Micro-enterprise can do wonders for Baltimore and other cities, but those trying to promote it here and elsewhere in the country need to understand the difference.

Muhammad Yunus, a Bangladeshi economist, and his Grameen Bank won the Nobel Peace Prize last week for recognizing in the 1970s that many poor people are creditworthy and that even tiny loans can make big differences in their lives.

Yunus would lend $50 or $100 at a time to women - clients were mostly female - who would buy egg hens, sewing machines, cooking gear or some other asset to capitalize a small business.

Essential to Grameen's success was hitting upon a loan structure that greatly increased the chances that borrowed money would be paid back.

Its Bangladeshi clients were poor in assets, income and credit history, but they were rich in social connections and reciprocal obligation. By lending to five people at a time and holding all five responsible, Grameen impressively reduced default rates. Peer pressure ensured that loans were repaid.

The backwardness of Bangladesh's economy also was, counterintuitively, a factor in Grameen's success.

In a country with so little output per worker, even tiny capital investments with minimal training for borrowers led to comparatively huge gains in productivity that could generate income to repay a note.

Grameen's renown bred hundreds of imitators. But the Grameen model doesn't work everywhere. FINCA International tried a Grameen-style program in Baltimore from 1998 to 2002 but ended up losing $150,000 because half of the clients "took the money and ran," its founder told The Sun's Jamie Smith Hopkins this year.

Women Entrepreneurs of Baltimore disbursed some of the FINCA money.

"We had a very successful run with it, and then it got not so successful," says CEO Joanne Saltzberg. One problem with getting the loans repaid, she adds, is that "there's no way to put on the social pressure like there is in Bangladesh."

Another problem: The highly developed U.S. economy means that competition against small business is fiercer, and that gaining a sustainable business advantage with small investments is more difficult.

The secret U.S. ingredient for small-business success is not so much financial capital as intellectual capital, and Women Entrepreneurs of Baltimore is trying to fill that gap. The group does make or guarantee micro-loans for a few businesses, but it puts most of its resources into educating hundreds of people to start restaurants, hair salons and dozens of other kinds of companies and to navigate the cutthroat economy.

Even its lending activities are largely educational.

"What we do with our loan fund is to try to get people to understand how credit works," Saltzberg says.

Cathy Kratovil didn't need a loan; she bought her Macintosh with a credit card. What she needed was knowhow.

Trained as an administrative assistant, she became interested in graphics and aspired to learn more. "But the company that I worked for didn't want me to go to school," she says. "I was good enough for them the way I was."

But she wasn't good enough for herself. She took design classes and then applied to Women Entrepreneurs of Baltimore for intensive tutorials on launching a company.

"I had no professional background on how to run a business," she says. After more than 100 hours of lessons in finance, marketing, identifying competitors and more, "you walk away with a viable business plan that is really helpful," she says.

Her business, Visuals, produces brochures, marketing literature, fliers and other graphics products. She still meets regularly with a coach at Women Entrepreneurs.

ACCION International, one of the biggest global micro-lenders, also puts substantial resources into education and coaching. Its ACCION New York affiliate ran a financial-literacy campaign for Hispanics this summer, just started offering free legal advice to clients and enlists successful clients to coach up-and-coming entrepreneurs.

Grameen's Yunus, says Saltzberg, "understood that you need to give people the tools to become independent."